The credit union-led CU Wallet is working to attract small-business support by drawing on the local ethos that credit unions have nurtured for years, but it faces a formidable challenge as device makers such as Apple and Samsung bake their own wallets into the hardware.

Apple Pay and Google's upcoming Android Pay will come pre-installed on users' devices, and presumably so will Samsung Pay. These big brands are casting a very wide net as they gather merchant support, but CU Wallet predicts there will be many smaller merchants that slip through that net's holes.

"There are some national mobile wallet plays that are out there. But as you move down the ecosystem with mobile wallet technology it gets harder to acquire the local merchants," said Karl Cherry, the chief product officer of CU Wallet. The credit union-driven venture has partnered with Relevant Solutions, which provides mobile in-store shopping content for financial institutions, to integrate merchant offers and promotions with CU Wallet.

The partnership is aimed at merchants of all sizes — Relevant brings existing relationships with about 750 national merchants. CU Wallet hopes its member credit unions will be able to use their relationships with local merchants to add a niche market base to the national retailers that come through Relevant.

"We can work with local credit unions to partner with business that want to operate in the community," Cherry said. "They can offer coupons, gamification and other things to drive traffic to merchants."

CU Wallet has 74 members, according to the most recent list it posted online, and it has gradually built out services over the past couple of years through partnerships with mobile technology companies such as Paydiant, DoubleBeam and CheckAlt. CU Wallet supports most forms of mobile payment technology, including Near Field Communication, cloud-based options and Bluetooth Beacons, though the initiative is heavily focused on QR codes in the early going to attract as many merchants as possible.

The Paydiant partnership allows the credit unions to build white-label mobile payment systems that handle transactions, electronic receipts and cardless cash access on point of sale systems, ATMs and shopping carts.

"We want to allow these credit unions to add value for members that they already know very well," Cherry said.

One of Many Mobile Wallets

Arvada, Colo.-based Partner Colorado CU has signed with CU Wallet and expects to go live with it by year end.

"We wanted to make sure we're in all of the wallets that are available," explained EVP Branda Gilmore, noting that the institution will be implementing CU Wallet at the same time it implements Apple Pay, Android Pay and other major wallets. "We didn't want to pick one and isolate part of our membership."

Fitchburg, Wis.-based Summit CU is listed as a participating credit union with CU Wallet but hasn't committed to moving forward, explained Joanne Belanger, VP of PR and digital marketing. Summit has taken a similar track as Partner — it just rolled out Apple Pay — but Belanger said the strategy at her CU is more about building connections with local businesses than offering an alternative to the larger mobile wallets.

"At this point in the internal discussions, we're not banking on one [mobile wallet] to win out over the other," she explained. "Our key thing is to position ourselves as the default card in whatever payment system our members want to use."

CU Wallet recently launched its own standalone app, and Belanger said that Summit is weighing whether or not to implement mobile-payment functionality into its own app or to wait to see which provider becomes the dominant player in the market. At Partner, however, CU Wallet is being integrated into the app from the get-go, with the hope of a seamless interaction once CU Wallet launches there later this year.

As mobile wallets become standard on new smart phones, however, Gilmore admitted that there is always the possibility that Apple Pay or another mobile wallet may win out and render CU Wallet obsolete. But, she said, CU Wallet offers enough different ways for credit unions to market it, along with loyalty features built-in.

"It will really be that grassroots marketing effort, building relationships with our members to get that buy-in," she said. "So as long as that happens — not just with us but with every other user and investor of CU Wallet — I think it will be successful."

Same Competition as Banking

In the mobile wallet game, credit unions face the same sort of well-heeled multinational competition that they do in banking. Apple, Google and Samsung are all actively developing or updating their mobile wallets, while Walmart and other large retailers are driving CurrentC, a merchant-led mobile payment initiative. And PayPal recently agreed to acquire Paydiant, one of CU Wallet's partners, to extend PayPal's own abilities to offer in-store mobile payments.

But simply owning the technology is no sure thing. Years ago, a mobile wallet startup called Bling Nation gained some success with a hyper-local approach, but its merchant clients abandoned it when the vendor began pushing its loyalty system too aggressively.

More recently, SCVNGR's LevelUp has had success with a gamification-based mobile payment and loyalty system, though the company encountered some resistance to its past experiments with pricing.

Apple Pay dodged these issues entirely by supporting retailers' existing loyalty programs (or, at the very least, not launching one of its own) and by sticking to the conventional interchange pricing model.

"Simplicity is the key for small merchants," said James Piel, founder of Relevant Solutions. "And when consumers go into a store, they want to look at their mobile app when they go in and know two things: What is on sale and what are the coupons."

The credit unions will be challenged in going up against the larger mobile wallet ventures, which have plenty of technological advantages, according to Thad Peterson, a senior analyst at Aite Group.

"I'm not certain there that there is a sufficient value in a local brand or any enhancement to the value proposition that they could provide to offset the relative simplicity and convenience of the major wallets," Peterson said.

The major wallets will already be embedded in the mobile device, and provisioning is simple, Peterson said. "Regardless of the platform, loading a CU Wallet will require additional steps for provisioning, and using the wallet for a physical payment may not be as frictionless as it is with the major alternatives."

However, credit union members who are loyal to their CUs may proactively choose their credit union's wallet to support their institution, Peterson said. "I don't know how big that customer base is, though. I would guess that even if it is relatively strong, it will be difficult to overcome the advantages of the embedded wallets."

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